This paper investigates the relationship between diversification and firm performance in China property insurance industry using data over the period 1999-2005. Our empirical analyses show that there is an inverse U-shaped relationship between product diversification and firm performance. Geographic diversification has a positive effect on firm performance. We find that there is an interaction relationship between product diversification and geographic diversification and it has a negative effect on firm performance. The finding suggests property insurers should try to seek for an optimal balance between product diversification and geographic diversification. Results also show that firm size and group status are positively related to financial performance.
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